Utilities Facing a New Probe

By

Jacob Gershman

Updated Nov. 14, 2012 10:23 p.m. ET

New York Attorney General Eric Schneiderman has opened an investigation into the Long Island Power Authority and Consolidated Edison Inc.ED0.70% over the utilities' preparedness and response to superstorm Sandy, according to a person familiar with the inquiries.

Mr. Schneiderman's office subpoenaed both utilities on Wednesday, requesting details about their emergency plans and their handling of last month's ferocious storm that knocked out power to millions of New Yorkers, the person said.

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The attorney general's scrutiny of New York's largest suppliers of electricity comes amid widespread public anger over the prolonged power failures that followed the storm.

Mr. Schneiderman's office issued the subpoenas a day after New York Gov. Andrew Cuomo formed a special state commission to conduct a "thorough review" of LIPA and other utility companies and possibly recommend large-scale changes to the way power is delivered in the state.

LIPA, whose network is operated under contract by National Grid, has come under particularly intense scrutiny since Sandy hit the area on Oct. 29.

The state government-owned utility has been inundated by complaints of communication and logistical failures, hobbled by many of the same problems it faced after Tropical Storm Irene last year. LIPA's acting chief executive, Michael Hervey, resigned on Tuesday effective at the end of the year. As governor, Mr. Cuomo has thus far left LIPA's board intact, while shaking up the leadership of other public authorities.

Sandy wiped out power to close to one million of LIPA's 1.1 million customers—leaving parts of many villages on Long Island in the dark for nearly two weeks. More than a quarter of Con Edison's customers lost power, including most of Manhattan below 39th Street for several days when a single substation broke down because of flooding.

It's not clear what legal case Mr. Schneiderman could build against the utilities.

Mr. Schneiderman's office could look into whether LIPA violated its enabling statute under the state Public Authorities Law. The law requires that LIPA assure its customers of a reliable and adequate supply of electricity.

The office also may review assertions that LIPA made to bondholders in disclosure statements, including a statement in June that it had adopted storm response procedures "designed to restore service expeditiously."

On Monday, the bond-rating agency Fitch downgraded the utility's outlook to negative from stable. But LIPA's bonds are still selling briskly, according to Matt Fabian, managing director of Municipal Market Advisors.

Mr. Cuomo put two well-known attorneys allied with the governor in charge of his probe: Benjamin Lawsky, his superintendent of the Department of Financial Services, and Robert Abrams, a former New York attorney general who ran Mr. Cuomo's transition team in 2006 when the latter was elected attorney general.

The attorney general's office could look into whether Con Edison, a publicly traded company, violated the Public Service Law, which requires investor-owned utilities to "furnish and provide such service, instrumentalities and facilities as shall be safe and adequate."

"We look forward to reviewing the company's storm preparations and response and are cooperating with the attorney general's request," said Con Edison spokesman Chris Olert.

A government probe of power companies is unusual, experts said, with class-action litigation the more common outcome in the wake of widespread blackouts. Former New York Attorney General Eliot Sptizer launched a probe of Con Edison in 1999 after a summertime blackout in northern Manhattan, but didn't pursue criminal or civil charges.

Mr. Schneiderman's investigation, which, a person familiar with the inquiry said, began on Nov. 5, could have more teeth, opening the door to possible civil or criminal charges.

Under the state's Moreland Act, Mr. Cuomo's commission can take testimony and issue reports.

But unlike the attorney general's office, the special panel doesn't have the authority to prosecute lawbreakers. It can refer cases of potentially criminal conduct to the attorney general or a district attorney.

Most utilities in the region have restored power to nearly all those who reside outside of flood zones. As of Tuesday, more than 50,000 Con Edison and LIPA customers were still without power, including much of the population of the Rockaways, either because the homes or office buildings suffered severe flood damage or hadn't yet gotten a go-ahead from an inspector to reconnect to the grid.

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